After years of riding the high seas of record freight rates, ocean shipping companies are now taking on water. Spot rates have dropped sharply, with the Drewry World Container Index falling 10% to $2,795 per 40-foot container by late February. For reference, that’s nearly half the $5,000 peak in early January.
Shipping consultant Lars Jensen notes that rates to both U.S. coasts plunged 18% in just a week, leading MSC—the world’s largest ocean shipping company—to suspend its Asia-U.S. West Coast Mustang service. The reason? Weak market conditions. Translation: there are too many ships chasing too little demand.
Overcapacity: A fleet too far
Shipping companies spent their COVID windfalls like drunken sailors, ordering new vessels at a breakneck pace. Now, those ships are hitting the water just as demand softens. AlixPartners estimates 205 new container ships will be delivered in 2025, while only 84 will be scrapped. That’s like adding new trucks to a highway no one wants to drive on.
And it’s not just new ships flooding the market. The detour around the Red Sea added 162 vessels to global capacity. If the Middle East trade route reopens, those extra ships will become surplus, further undercutting rates. It’s a classic case of too much boat, not enough cargo.
Tariffs: The unwanted stowaway
Trade disputes are adding more uncertainty. After months of cargo front-loading to dodge looming tariffs, freight demand is cooling. Trump’s latest tariff announcements include a 25% levy on EU imports, a 10% hike on Chinese goods, and an earlier-than-expected tariff enforcement on Mexico and Canada. Companies rushed to stock up ahead of these duties, and now, warehouses in Savannah, Houston, and Gulf Coast ports are bursting at the seams.
Kent Williams of Averitt Express sees businesses hitting the brakes on ocean orders. “We saw a surge in January and February,” he said, “but now, companies are taking a step back.” Translation: too much inventory, too little urgency to ship more.
Alliances are breaking up, and that means trouble
The world’s largest carriers have long relied on alliances to share capacity and coordinate schedules. That’s changing. MSC is now going solo after a 12-year partnership, while Hapag-Lloyd and Maersk launched the “Gemini Corporation” alliance in February. Two other alliances, Premiere and Ocean Alliance, still dominate the market.
Fewer alliances mean more aggressive competition. As AlixPartners puts it, “We could see a 9-10% increase in capacity, triggering a rate war.” In simple terms: carriers will be scrambling to fill ships, and that means lower prices for shippers—but pain for the carriers.
The supply chain is feeling the undertow
When ocean shipping slows, the entire supply chain feels the impact. Trucking, rail, and air freight depend on ocean imports to move goods inland. Landstar System’s latest earnings call hinted at a sluggish recovery in ground transport, as freight recession fears linger.
If ocean rates keep falling, don’t expect a rebound on land anytime soon.
Is there a life raft?
Shipping execs might not be laughing, but here’s an old industry joke: What’s the safest ship in the world? A partnership. Unfortunately, even those aren’t unsinkable anymore. With excess capacity, tariff uncertainty, and shifting alliances, ocean carriers face an uphill battle.
One thing’s for sure—after years of record profits, it’s time for these giants to learn how to operate in leaner times. Adapt or sink—there’s no smooth sailing ahead.